Tax Deductions Demystified

By BankBazaar | January 27, 2016

Tax Dedudctions

It’s that time of the year again when we start suffering from the Income Tax blues. It’s mainly because many of us do not have a clear picture of the Income Tax laws in our country. But don’t fret, we’re going to help solve the mystery of tax deductions for you. But before we begin, let’s understand what Income Tax is.

What is Income Tax?

The first thing you need to know is that Income Tax is a direct form of tax levied by the Central Government on all salaried individuals and companies to fund infrastructural developments in the country and to pay Central or State Government employees.

Paying Income Tax is mandatory for pretty much everyone. That is, all salaried individuals, companies, corporate firms, Hindu Undivided Family, Body of Individuals (BOI), and all other individuals who generate some form of income.

Currently, our Income Tax laws are governed under the provisions of the Income Tax Act, 1961.

All that information is something that you’re probably already aware of. But do you know about the different sections under which tax is deducted for individuals and what the exemptions are?

Right from insurance policies, medical expenses, house rent allowance to educational loans, you can claim tax benefits as explained below.

Additional reading: How to Calculate Taxable Income from Salary

Insurance Policies (Section 80C)

This is one of the most popular means of investment available to individuals on their gross total income.  Under section 80C, 80CCC and 80CCD, your total exemption cannot exceed Rs. 1,50,000.

Sub-section Investment Options Max. Deduction Allowed
80CCC LIC Insurance policies or any other recognised insurer Deduction up to Rs. 1,00,000
80CCD Contribution to a pension account that is recognised by the Central Government Deduction up to 10% of salary
80CCF Investment in long-term infrastructure bonds Deduction up to Rs. 20,000
80CCG Investment in a notified equity savings scheme Deduction up to Rs. 25, 000

 

Medical Insurance and treatment (Section 80D)

Investments made towards medical premiums for self, spouse or children by using any form of payment other than cash are eligible for tax claims. Both individuals and members of HUF can claim tax deductions under this section.

Sub-section Investment Options Max. Deduction Allowed
80DD You can save up to Rs. 25,000 towards medical insurance for self, spouse and dependent childrenYou can save up to Rs. 15,000 towards medical insurance for parents aged 60 years or lesser

You can save Rs. 30,000 for medical insurance for parents aged above 80 years

Deduction up to Rs. 25,000 

 

Deduction of Rs. 15,000

 

Deduction of Rs. 30,000

80DD Medical treatment of a handicapped dependent. For severely handicapped people, the amount can reach up to Rs. 1 Lakhs Deduction up to Rs. 50,000 
80DDB Medical expenses of specified diseases and ailments (Parkinson’s disease, neurological diseases, chronic renal failure, AIDS, malignant cancer, thalassaemia, haemophilia) Deduction up to Rs. 40,000 

 

Educational Loan (Section 80E)

Under this section, you can claim tax benefits for educational loans availed from different financial institutions or approved charitable institutions. Only individuals can claim exemptions under this section.

Sub-section Investment Options Max. Deduction Allowed
80E Contribution made towards an Education Loan which you may apply for self, spouse or children.Tax benefits can be claimed towards the interest paid for the Education Loan, even if you are planning to study abroad

The principal amount does not qualify for tax benefit.

No limit specified 

 

House rent (Section 80GG)

Under this section, you can claim tax benefits for house rent paid when HRA is not received. Only individuals can claim tax benefits under this section.

Sub-section Investment Options Max. Deduction Allowed
80GG You can produce house rent receipts to claim tax benefitsYou should not be in receipt of any house rent allowance in order to get exemption

You should not have any self-occupied residential property

Rent paid minus 10% of total income subject to a ceiling of 25% thereof, whichever is lesser 

 

First time house owners (Section 80EE)

You can claim tax benefits on the interest due for the year on your Home Loan. Only individuals who are first time house owners can claim tax benefits under this section.

Sub-section Investment Options Max. Deduction Allowed
80EE Value of the house should not be more than Rs. 40 LakhsLoan amount should not be more than Rs. 25 Lakhs Total deduction shall not exceed Rs. 1 Lakh 

 

Savings Account (Section 80TTA)

This section has been introduced with effect from April 01, 2013 and will be applicable for AY 2013-14 and onwards. Under this section, only individuals and HUFs can claim tax benefits.

Sub-section Investment Options Max. Deduction Allowed
80TTA Savings Accounts operated by post offices, banks or co-operative societiesThe deduction is in addition to the Rs. 1.50 Lakhs allowed under Section 80C

You cannot claim deductions for Fixed Deposit accounts

Total deduction up to Rs. 10,000 

 

Rajiv Gandhi Equity Saving Scheme (Section 80CCG)

This scheme was launched after the 2012 Budget. Only individuals can claim tax benefits under this section.

Sub-section Investment Options/Rules Max. Deduction Allowed
80CCG You can claim tax benefits if you earn less than Rs. 12 Lakhs in a yearYou can save 50% of the amount invested in equity shares or Rs. 25,000 whichever is lower

The minimum lock-in period is three years

You should be a new retail investor and the investment should be made only in listed equity shares or units

Total deduction up to Rs. 50,000 

 

Physical Disability (Section 80U)

You can claim tax deductions under this section only if you suffer from any kind of physical disability (up to 40% disability). Only individuals can claim this tax benefit.

Sub-section Investment Options/Rules Max. Deduction Allowed
80U You have to obtain a medical certificate from either a Central or State Government authority Total deduction up to Rs. 75,000 or Rs. 1. 25 Lakhs (in case of severe disability

 

Social Causes (Section 80G)

You can claim tax deductions under this section if you donate some money towards social causes. Individuals, companies or any specific taxpayer can claim the benefits.

Sub-section Investment Options/Rules Max. Deduction Allowed
80G 

 

 

 

80G

100% in case of donations made towards Prime Minister’s National Relief Fund and others50% deduction in case of contribution made towards Indira Gandhi Memorial Trust and others

100% deduction for contribution towards institutions promoting family planning

50% deduction for contribution towards charitable institutions promoting anything other than family planning

100% and 50% deduction limit for donations to specific

 

Political Donations (Section 80GGC)

You can claim tax deductions under this section for donations made towards political parties. Individuals, companies or any specific taxpayer can claim the benefits.

Sub-section Investment Options/Rules Max. Deduction Allowed
80GGC Only for contributions made by any other means than cash No amount specified

 

We hope we’ve simplified the different sections under which you can claim tax deductions.Now, how about checking out some options to open a Savings Account to help claim tax benefits under Section 80TTA?

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